Valley Federal Discloses Talks With New Suitor

Valley Federal Savings & Loan, having rejected a takeover proposal from Citadel Holding Corp., said Wednesday that it is holding "serious" talks about being acquired by a California-based financial institution it did not identify.

Sources close to the situation said Valley Federal's suitor is Home Federal Savings & Loan, a San Diego-based thrift with about $14 billion in assets and 168 offices in California. The sources agreed to discuss the matter on condition that they not be named.

Van Nuys-based Valley Federal, which has $3.1 billion in assets and 47 branches, said its new suitor has proposed paying cash "substantially in excess of current market prices" for Valley Federal's 8.5 million common shares outstanding.

On Wednesday, Valley Federal's common stock jumped $2.375 a share to $21--a 52-week high--in national over-the-counter market trading. At that price, market value of all its outstanding shares is $121.8 million.

Valley Federal began looking for a friendly merger partner last month after Citadel, the Glendale-based parent of Fidelity Federal Savings & Loan, announced that it has obtained options and commitments to purchase 39% of Valley Federal's stock and that it wanted to pursue a merger. Citadel has not yet made a formal offer.

Citadel, which has $3.8 billion in assets and 30 branches, issued a statement Wednesday saying its "numerous" offers to negotiate a merger with Valley Federal were rejected. It also said Valley Federal had provided other prospective buyers with its private financial records, but had refused to give Citadel the same information. Valley Federal's Fleming declined to comment on Citadel's claim.

Nonetheless, Citadel Chairman James A. Taylor said in a telephone interview that his company "may make an offer" for Valley Federal regardless of whether or not Citadel is given Valley Federal's financial records. Prospective buyers of companies usually try to examine those records, in a process called "due diligence," before making a formal offer.

"If they're seeking the best interests of their stockholders and the highest price, why do they give the information to selected parties?" Taylor asked. "If a true auction was being held, they would give it to everybody."

Taylor also asserted that Citadel, holding options on 39% of Valley Federal's stock, can veto any proposal by Valley Federal to merge with another company. That is because Valley Federal's charter requires all merger proposals to be approved by holders of at least two-thirds of Valley Federal's shares, he said.